Chinese national accused of smuggling technology is nabbed at Honolulu airport

A Chinese national was taken into custody Thursday at Daniel K. Inouye International Airport in Honolulu after he was caught in a government sting allegedly attempting to smuggle prohibited technology back to China, including a radiation-hardened programmable memory device designed for battle or space.

A preliminary hearing that was closed to the public for Pengyi Li, also known as Jacky Lee, was held Friday in U.S. District Court. The case has now been sealed, with government officials citing an ongoing investigation.

Li, 33, agreed to continued custody and to be sent to New Mexico where a federal criminal complaint was filed charging him with smuggling goods from the United States, conspiracy and violation of the Export Control Reform Act.

FBI Director Christopher Wray testified last month at a Senate Judiciary Committee hearing that “there is no country that poses a more severe counterintelligence threat to this country right now than China.”

The FBI has “probably about 1,000-plus investigations” across the country involving the attempted theft of intellectual property, with “almost all leading back to China,” he said.

China is using government officials, private-sector entities and nontraditional collectors “to steal their way up the economic ladder at our expense,” Wray said.

According to an affidavit filed by Jeremy Arellano, a special agent with the Department of Homeland Security, the case that led to Li’s arrest started two years ago with U.S. undercover agents posing as brokers for restricted U.S. technology communicating with “Individual 1,” believed to be a Chinese citizen living and working in Hong Kong and adjacent Shenzhen in mainland China.

The female representative wanted angular rate sensors designed for high-performance applications. The items are classified as “defense” articles and need special export licenses but are specifically prohibited for export to China.

She was advised multiple times that the sensors required a U.S. State Department license, but both sides discussed conducting the transaction without a license and “going forward with an illegal transaction,” according to the affidavit.

On June 15, 2018, the woman asked to obtain radiation-hardened programmable memory devices that can be used in space or battle, but said there was “some worry” about export restrictions and asked about shipment to South Korea or India.

The filing said she transferred over $80,000 to a U.S. bank account for 30 of the devices which included a $21,474 “risk fee” to illegally export the controlled items to Hong Kong.

In early January the woman said she was buying radiation-hardened microchips from a California company and asked for the undercover agent to include those in the shipment.

Some of the parts were mailed Jan. 16 from Albuquerque, N.M., but were immediately intercepted and returned to Homeland Security as evidence.

The undercover agent then told the Chinese contact that U.S. Customs and Border Protection had seized the package and imposed a $16,000 fine.

On May 29 the undercover agent received a message from Li, who said he was the “manager,” according to the affidavit.

Li wanted the parts, said it was the broker’s responsibility to pay the fine and sought a transfer in Saipan. The undercover agent reported that the fine was paid and a Customs officer was bribed to get the items back.

Li said he could meet in Saipan or Canada or “Europe countries (that) are so much safer, luggage is fine,” to transfer the parts, but the undercover agent suggested Hawaii, the court filing states.

Li reportedly asked if “Hawaii was safe and legal.”

“Here is the situation,” the undercover agent replied. “It is illegal to take this part out of the United States, such as Hawaii, or any United States territory, such as Saipan,” and was specifically banned from going to China.

That’s why the Chinese woman paid the “large fee” to the “company” — so the parts could be smuggled out, the undercover agent said Li was told.

Li also reportedly asked whether he would be protected when leaving Hawaii, and was told a Customs supervisor would be bribed with money, cigars and whiskey, and “then he will make sure that your flight is not searched.”

On Wednesday an undercover agent acting as a “supervisor” met Li in Honolulu — with Li repeatedly angling for a “commission” to carry the parts back to Hong Kong, the filing states.

A day later at the airport, the report said, Li checked into his flight to Hong Kong, and the undercover agent gave him a package containing a high-performance memory device and radiation-hardened microchips.

Both need special export licenses, and both are specifically prohibited from export to China.

Li proceeded to the gate and attempted to board the flight when he was arrested, the government said.